Where do property developers commonly go wrong?
Planning a property development project can be an incredibly exciting time for first-time property developers. The prospect of buying a property or lot of land, redeveloping, and selling the finished result for a greater profit holds undeniable appeal for investors looking to fast-track their way to wealth through property, but this strategy doesn’t come without its inherent risks. Whilst property development can be an incredibly rewarding strategy when investors get it right, it can also cost them significantly if they get it wrong. Here are some of the key property development mistakes that can be avoided with proper planning and research.
Choosing the wrong location
As with any property investment venture, the key to succeeding in property development is doing your research beforehand. You can do everything right once you’ve acquired a site, but the project could for be doomed from the start if you haven’t chosen the right location for your development in the first place. The first thing to ask yourself when researching an area for development is whether there is enough demand for property in that location. If there is already an oversupply of properties in the area, this will push property prices down and significantly limit the amount of profit you can expect to make from your development project, potentially leaving you with a vacant property that isn’t attracting attention from buyers.
Targeting the wrong demographic
In addition to choosing the right location for a development site, successful developers will also need to choose the right type of property to build for that location. Demand sells, and not understanding or serving the needs of your target market can be a fatal mistake for even the most seasoned of investors. For example, you wouldn’t develop a villa in a market that is already flooded with vacant villas, as this is a clear indication of lack of demand. Equally, you probably wouldn’t build an apartment in a low socio-economic area where property prices are already low. An apartment in a high socio-economic area, on the other hand, might prove a popular alternative for investors looking to downsize or for buyers seeking a more affordable option in high-demand suburbs. This is where assessing the local market and developing a property that fulfils the demands of your target demographic is key to success and, ultimately, profit.
Not doing due diligence
Successful property development is about identifying a suitable site for your development project, but it’s also about knowing when a site isn’t suitable for development. Failing to notice a problem in the earlier stages of acquisition could cost you significantly in the long run, and could even hinder the feasibility of your project altogether in extreme cases. Unfortunately for some DIY or amateur developers, these problems are often discovered too late. Whilst it may be time-consuming, it’s extremely important as a developer to carry out thorough due diligence of a site before finalising any offers. And this often means looking beyond the surface of the property to uncover any hidden problems. This is something one of our clients discovered all too well in one of our recent development case studies.
Poor financial planning
At the end of the day, the aim of a development project is to make profit. Whilst most investors go into development with the intention of making a quick return on investment, one of the key property development mistakes made by amateur investors is overcapitalising on cost. The last thing you want as an investor is to pay for a project that won’t pay you back in returns, or worse, blow your budget before the development is finished. Before jumping into a development project, it’s extremely important to factor all expenses into your budget, and this includes leaving yourself a buffer in case any unexpected costs come your way. If you’re not left with a significant profit margin once you’ve factored in costs such as approvals, building expenses and taxes (to name just a few), you may need to re-consider your development strategy or find a site that better fits your budget.
Take a deeper look at development
The mistakes above have given a broad insight into the kind of traps aspiring developers can fall into without proper planning and knowledge of the processes involved in property development. If you are thinking about developing a property and would like more insights into how to plan a successful development project, or would like to find out how our team can support you in your goals, get in touch with us for an obligation-free consultation with a member of our development team.